Home Equity Loans: Dos and Don’ts to Know
If you have a home mortgage, a home equity loan can be an affordable and convenient way to get money for unexpected expenses. However, it’s important to tread carefully when using a home equity loan, since your home is the collateral. These dos and don’ts of using home equity will help you decide if this kind of loan is the right choice for your financial goals.
Do Use Equity to Invest in Your Home
One of the best ways to use your home equity is to make your home better. Spending money from a home equity loan on improvements that will increase your property value can be a wise investment for your future. Avoid using home equity loans to make small repairs and instead use the money to invest in one-off renovation projects or major repairs, such as roof replacement.
Don’t Pay for Your Lifestyle with a Home Equity Loan
Knowing that you can easily access the equity you have in your home can make it tempting to use it to indulge in things you want, like a boat, sports car, or extravagant vacation. However, using your equity for these purchases give you secured debt for expenses that should be in your household budget if you want them. It’s risky to use your home as collateral for unnecessary purchases.
Do—or Don’t—Pay off Debt
There is disagreement about using a home equity loan for credit card debt. Credit card debt is unsecured, so if you don’t pay, you don’t run the risk of losing your home. However, it is also high-interest, so paying it off with a home equity loan gives you the chance to save a significant amount of money. Keep in mind that if you use a home equity loan to pay off your cards and then run them up again, you’ll be further in debt and will now have debt that is secured against your home. Your credit union can help you weigh the pros and cons.
GCS Credit Union offers competitive rates on home mortgages in O’Fallon and can help you decide what kind of borrowing is right for you. To speak to a representative at our credit union , call (618) 797-7993.